European open – Markets, oil deal, gold, bitcoin

Huge two weeks for markets

Stock markets in Europe have openeda little mixed on Thursday after the second quarter got off to a disappointing start a day earlier.

Source – Thomson Reuters Eikon

The change of tone from Trump on Tuesday seemed to really dampen the mood in the markets after a good week heading into the end of the first quarter. The realisation of how bad things are going to get and how dreadful the next two weeks are going to be appeared to weigh heavily on risk appetite just as stock markets were starting to pick up.

The numbers we’re going to see over the next few weeks are going to be shocking, both in terms of the death toll – projected to be more than 100,000 in the US and as high as almost a quarter of a million – and the economy. The US jobless claims number last week was horrific and this week is expected to be even worse.

While much of this may prove to be temporary, plenty won’t and at the moment, it’s impossible to know how many that will be. Markets gave the jobless data a free pass last week, will they do the same this time around if the number is once again much higher? We also have the jobs report tomorrow and expectations here look a little over-optimistic. It could be an interesting couple of days for markets.

The next few weeks are also crucial here in the UK, both as far as the coronavirus itself is concerned as well as the survivability of many small and medium-sized businesses. The reports over the last couple of days are extremely concerning. If nothing changes we could be in for a very distressing few weeks that will have consequences for months to come.

Are Russia and Saudi Arabia really nearing a deal? I’m very sceptical.

Oil prices are bouncing back strongly today, up around 10%, after Donald Trump suggested  a deal between Saudi Arabia and Russia to end the price war may be days away. I tend to take these things with a pinch of salt, how many times has the President said something that’s conveniently moved markets in his desired direction? Perhaps I’m mistaken but we’ve not heard many noises from Saudi Arabia or Russia that indicate a deal is days away.

What may be contributing to the rise is US shale, rather than the Saudi or Russian producers, after Whiting Petroleum filed for Chapter 11 bankruptcy. We’ve heard a lot about the indebtedness of many of the shale firms so more may follow quickly behind. Which again begs the question, after years of conceding market share to the US, why would Russia and Saudi Arabia make a deal to effectively save shale producers?

Gold could be well supported in the weeks ahead

Gold is looking a little flat on the day after making decent gains on Wednesday as stock markets sold off. This could be a very interesting few weeks for gold. The market turmoil didn’t suit the yellow metal. Heavy losses elsewhere appeared to lead to gold positions being liquidated, meaning we didn’t see the traditional safe haven offer much safety at all. Quite the opposite in fact.

Should stocks come under pressure over the next couple of weeks as the coronavirus death toll in the US and elsewhere accelerates rapidly, gold may find itself a haven once again for risk averse investors. That assumes we don’t see the scale of losses we saw in March, of course, but I feel investors have a better grasp of what we’re facing now and these markets are trading at deeply discounted levels, which they certainly weren’t before.

Gold Daily Chart

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Is 2020 the year of the crypto?

Which brings us to bitcoin. It took a heavy beating in March along with everything else so we didn’t really learn too much from that particular experience. It’s losses were far greater than elsewhere but it’s bitcoin, that’s its thing. It’s bouncing back now with other risk assets but so has gold. The next few weeks could be interesting. It’s a highly speculative asset that backers want to be a digital gold 2.0. I’ve never bought this but these are remarkable times, the world is changing right in front of our eyes. If ever there was an opportunity for bitcoin to prove its worth, surely this is it. It could be a big year for cryptos.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.